Likelihood vs Impact Matrix Template

Introduction

A method of risk assessment indispensable to the work of risk managers is the Likelihood vs. Impact Matrix-otherwise referred to as the Probability-Impact Matrix or the Risk Matrix. It brings together the two vital dimensions of determining the likelihood of risk event occurrence with evaluating the impact of consequences should such an event occur, into one coherent visual framework within which systematic prioritizing of risk and allocation of resources can function. It converts the complex, messy nature of organization risks into structured, comparable assessments that can inform strategic decision-making about which risks require immediate mitigation management versus which can be relatively monitored with fewer available resources.

Likelihood (as in Probability): Scale Of Probability And Evaluation 

A likelihood estimates how likely it will be for a risk event to materialize within an easy timeframe. Such an estimate is, for the most part, evaluated by standardized scales.

1. 5-Level Likelihood Scale: This is the most popular for detailed risk assessment: 

• Level 1 (Very Unlikely/Rare)- Risk would not occur ever; probability <10% per year.
  
  
• Level 2 (Unlikely)- The risk has a low chance of happening; probability of occurrence is between 10-25% per annum.
  
  
• Level 3 (Possible/Occasional)- A risk may happen; probability between 25-50% per year
  
  
• Level 4 (Likely/Probable)- A risk has a great likelihood of happening; probability from 50 to 75% per annum. 
  
  
• Level 5 (Very Likely/Almost Certain)- A risk will happen; probability band >75% per annum.

2. 4-Level Likelihood Scale: A simpler scale for organizations that would prefer fewer categories: 

• Negligible (1): Very unlikely
  
  
• Low (2): Unlikely
  
  
• Medium (3): Possible 
  
  
• High (4): Very likely 

3. 3-Level Likelihood Scale: Basic scale for initial assessments or less complex environments: 

• Low (1): Very unlikely
  
  
• Medium (2): Might occur 
  
  
• High (3): Likely to occur 

Assessing Likelihood: Likelihood assessment will consider many factors: 

• Past frequency: How often has this kind of an event happened in the past? 
  
  
• Current susceptibility: What is the exposure of the organization at this point-in-time to this risk? 
  
  
• Threat landscape: What external threat environment exists? 
  
  
• Existing controls: How effective are current mitigations? 
  
  
• Industry benchmarks: Probability for what peer organizations would experience.

Management Matrix structure Quadrant-wise Analysis

The likelihood vs. impact matrix is usually visualized as a two-dimensional grid showing likelihood on one axis and impact on another, thus creating quadrants with different strategies.

1. Quadrant 1: High Likelihood, Low Impact (Upper Left): These types of risks are often encountered but cause not much more than some inconvenience when they actually occur:

• Strategies: Implement measures to reduce likelihood: regular maintenance, quality control, employee training, and processes.
  
  
• For Example: Minor and temporary disruptions in network connectivity that can be resolved easily.
  
  
• Resource allocation: Moderate, focus on means to reduce the likelihood through preventive maintenance and procedures. 

2. Quadrant 2: High Likelihood, High Impact (Upper Right): These constitute the most dangerous risk types-likely to occur with gravest consequences:

• Strategies: Implement rigorous controls, monitoring, training, and capability enhancement. Put strong emphasis on crisis management planning! 
  
  
• For Example: Cyber breaches in the context of organizations with large databases of customers.
  
  
• Resource allocation: Maximum investment in prevention, detection, and fast response capabilities. 

3. Quadrant 3: Low Likelihood, Low Impact Risks: Little threat:

• Strategies: Monitoring but minimizing the resources involved; accepting the risk; putting some limited awareness into contingency.
  
  
• For Example: Minor Facility Maintenance Issues With Just A Limited Operational Impact.
  
  
• Resource allocation: Minimal-Monitor for any change in status; re-consider if either likelihood or impact increases. 

4. Quadrant 4: Low Likelihood, High Impact-Those are potentially catastrophic but rare risks where, despite low probabilities, a contingency must be prepared: 

• Strategies: Robust contingency and recovery planning, trigger point identification, emergency response capability preparedness, and backup/ redundancy maintenance.
  
  
• For Example: Catastrophic natural disaster or major pandemic.
  
  
• Resource allocation: Moderate to high- invest for contingency planning, emergency supplies, backup facilities, and rapid recovery capabilities.
  

Advantages Of The Likelihood Versus Impact Matrices When Compared To The Alternatives

The matrix approach provides several advantages over simple or complicated risk approaches:

1. Simplicity and Approachable: Two-dimensional framework thinking is intuitive and simple enough for stakeholder involvement in the risk assessment process, making it an either free-for-all or without too much need of specialized risk expertise. The simpler the format, the higher acceptance and engagement will be.
   
   
2. Visual Communication: Graphical visualization allows for quick visual assessment of the risk landscape, making matrices a more powerful means of communication than lengthy narrative descriptions of risk. Visual clarity facilitates the kind of fast executive briefings.
   
   
3. The Evaluation Based on Numbers: Risk ratings expressed in numerical format allow comparisons with objectivity among different risk scenarios, thus supporting prioritization decisions based on facts rather than on gut feeling. 
   
   
4. Scalability: Matrix works well from small entities managing dozens of risks all the way to large corporations managing hundreds of risks. 
   
   
5. Decision-Making Integration: Matrix augurs well for resource allocation, strategic policy planning, and contingency planning processes.

Conclusion 

The Likelihood versus Impact Matrix remains one of the best and most popular risk assessment tools primarily because it is a sophisticated yet accessible tool, giving a structured methodology for assessing very complex kinds of risks in the organization without requiring sophisticated statistical skills. It addresses both the probability and consequence dimensions systematically, arranges risks visually in intuitive quadrants, and calculates numerical ratings enabling objective comparison, turning matrices into evidence-based prioritization frameworks for converting subjective risk arguments into prioritization frameworks.